- 20 Marks
FR – L2 – Q12 – Revenue Recognition
State IFRS 15's core principle for revenue recognition and list the five steps to apply it.
Question
12 SALE OF GOODS AND LEISURE FACILITIES
“Revenue is income arising in the course of an entity’s ordinary activities.”
IFRS 15 sets out principles to be applied in order to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.
Required
(a) State the core principle described by IFRS 15 in the recognition of revenue and list the five steps to be followed in applying this core principle.
(b) Zest Ltd runs a health club which provides sports and leisure facilities. It charges a fixed annual subscription, payable in advance, which entitles members to use most of the facilities (e.g. gym, swimming pool). Additional fees are payable for specific activities (e.g. sauna, squash courts) as used.
Explain in detail how Zest Ltd should recognise revenue from membership subscriptions and additional activities.
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